Saturday, October 26, 2013

Show how classical economics was used to defend the laissez faire policies of the Industrial Revolution.

Classical economics can always be used to defend laissez
faire government policies.  This is because classical economics is based on the idea
that government should stay out of the markets.


According
to classical economics, the most efficient outcomes always happen when markets are left
to function on their own.  When this happens, supply and demand meets at an equilibrium
price -- there is no shortage and no surplus.


However, if
governments interfere in the markets, shortages or surpluses occur.  For example, if the
government forces railroads to lower their prices, there will be a shortage of railroad
shipping.  This will occur because people will want to ship more things (because the
price is cheap) and railroads will want to provide less shipping space (because they
don't make enough when prices are low).  In this case, there is more demand than supply
and you have a shortage.


So people could make arguments
like that to defend laissez faire -- they could argue that government involvement in the
economy always leads to bad results.

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